Answer the Following Questions Using the Aggregate Expenditures Model of the Economy

Question

Examlex · Accepted Answer

The Answer is (a)The marginal propensity to consume is .8,the marginal tax rate is .25,and the marginal propensity to import is .1.
(b)The saving function is S = -100 + .2Y_d.
(c)The aggregate expenditure function is AE = 182 + .5Y.Autonomous expenditure is $182.The marginal propensity to withdraw is .5.
(d)The equilibrium level of real GDP is $364.
(e)The multiplier is 2 (1/.5).
(f)A recessionary gap of $16 exists ($380 - $364).To eliminate the gap,the government must increase its expenditures by $8,which will be multiplied by 2.

Answer the Following Questions Using the Aggregate Expenditures Model of the Economy

Definitions: